IRS ESOP Determination Letter Backlog

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Earlier this week we discussed the IRS ESOP Determination Letter Timing Update.  During the October 28, 2011 IRS phone forum on Determination Letter Issues Regarding Employee Stock Ownership Plan, the IRS acknowledged that at one point they had a backlog of 1,500 determination letter requests from two submission cycles.  During this process they found a need for a “substantial amount of interpretive guidance.”  To address this they did they following:

1. Published 5 separate ESOP technical assistance memoranda, that are styled like internal guidance that is usually not shared with the public, to serve as a “national set of standards” and to promote transparency of their thinking on plan design issues:
   
   Response to Technical Assistance Request #1 (Nov. 3. 2009)

   Distribution of stock subject to immediate, mandatory resale is consistent with Code Section 409(h). 

   Response to Technical Assistance Request #2 (Nov. 3, 2009)

   Acceptable plan language defining “qualified participant” for diversification requirement of Code 401(a)(28) 

   Response to Technical Assistance Request #3 (Dec. 9, 2009)

   Required timing and content of Section 409(p) amendments, including regulations under 409(p)

   Response to Technical Assistance Request #4 (Feb. 23, 2010)

   Acceptability of provisions for mandatory transfer of employer securities and other assets to and from participant plan accounts. 
   
   We discussed this memo in detail in ESOP Rebalancing and ESOP Reshuffling Defined.

   Response to Technical Assistance Request #5 (October 8, 2010)

   Issues presented by provisions for mandatory transfer by reshuffling which are designed to prevent the occurrence of a nonallocation year for IRS 409(p) purposes. 
    

2. Shared the Employee Stock Ownership Plan Review Worksheet to enable a self-audit of an ESOP plan document:

   We thought it was important to put this out there too, number one, because it has the links to these different technical assistance memoranda so you can see why we’re asking for different things and the purpose.  But also, number two, this is a way for you to know, “Hey, here are the things the IRS is going to look for when they scrutinize your application.”  If you take a look at that check sheet, for example, you can essential self-audit your own plan document and know I have to have this material in the plan.  These are the things the IRS is going to routinely scrutinize and review for.  And for that purpose, although this is not a formal published product, we wanted to put this there so that everybody, again, could be on the same page so that you’ve got a view into the types of issues The Service is considering.  You can take a look at your own plan and anticipate that we might raise questions about where some of these provisions are located.  For that reason, we put that on the website, as well.

    

3. Provided IRS Section 409(p) Transfer Plan Document Sample Language.

    

4. Reference to an article in Employee Plans News - Issue Number: 2011-5 – June 22, 2011 that stated that the IRS will allows practitioners to fix multiple plan documents at one time:

   Practitioners who have submitted applications for multiple ESOPs, and who receive a letter from a determination specialist requesting plan amendments to a particular plan, may determine the applicability of that request to all other plans filed by the practitioner’s firm and submit a single response that would apply to some or all of the amendments to the firm’s pending ESOP Form 5300 applications. Include the letter from the determination specialist requesting the amendment(s) and provide a separate copy of the amendment to each affected plan, identifying the plans to which the proposed amendments apply.